Coronavirus

Stimulus check: how Americans spend the payment from IRS

After the Inland Revenue Services issues the first round of support to eligible households, the question was whether this was being spent and, if so, on what.

Stimulus check: how Americans spend the payment from IRS
DADO RUVIC REUTERS

As governments around the globe took measures to stave off the most severe predictions of infections from the coronavirus, the economic impact took hold. Businesses had to shut down their operations and individuals were left either out of pocket or with no income at all. In the United States, the CARES Act was signed to help people out, but what have they been using their $1,200 payments for?

Stimulus check spending

A big part of the rationale behind the $2 trillion support package was to ensure that the economy did not come to a complete halt. For that to work, however, it was important that individuals spent the money that was issued to them, along with a continued spend by those above the threshold. So, the question has been asked whether those eligible are indeed spending their check and, if so, what are they spending it on. Fortunately, a study being undertaken by those at the Kellogg School of Management at Northwestern University gives us an insight.

After their detailed analysis, it appears that the amount of money that a person has in their bank is a huge driver as to what they have then done with the support payment. For example, those individuals that had more than $3,000 in their accounts did not noticeably use the additional money. For those that had less than $500, though, around half of the money was spent within 10 days. The data also showed that for the millions that made unemployment claims there did not appear to be a difference in their actions, with the benefits due seeming to cover the pressing needs.

For those that are spending, the main items being purchased are fairly expected. Basic necessities such as rent and bill payments, as well as food and requirements for the home were taking the bulk of the check. The other notable spend was on delivery orders including takeaway food orders, which again can be understood given the conditions in many states.

Stimulus payments: what next?

With a second stimulus payment now under discussion, this study gives a decent indicator to law makers of the behaviours of Americans that could be entitled to the support. Those that have lower bank balances appear to be the ones to target if recycling the money is the objective and the analysis also points to regular payments - such as Universal Income and Unemployment Insurance - being most beneficial.

U.S. President Donald Trump in Washington, 28 May 2020.

U.S. President Donald Trump in Washington, 28 May 2020.

Will that play a role in what is agreed to as we await the Senate vote of the HEROES Act that went through the House? In its purest form it is unlikely to pass, but it may lead us to a final package that can help the economy, businesses, and individuals alike.